Hong Kong, Beijing and Bangalore’s Key Fashion Retail Streets

Majority of the world’s priciest fashion retail streets continue to show strong year-on-year (YoY) rental growth despite continued economic uncertainty, according to the latest Colliers International Retail Highlights Mid-Year 2012 covering total 129 prime retail locations. New York’s Fifth Avenue sustained its top spot as the world’s most expensive fashion retail streets, followed by Queen’s Road Central and Canton Road in Hong Kong.

Global Top Five Most Expensive Fashion Retail Streets

Retail Strips

Rents

(US$ / sq ft / year)

as of Mar 2012

Annual Change

(based on local currency)

New York – Fifth Avenue

$2,633

22.5%

Hong Kong – Queen’s Road Central

$1,831

34.7%

Hong Kong – Canton Road

$1,831

30.2%

London – Old Bond Street*

$1,601

11.1%

Paris – Avenue des Champs-Élysées

$1,239

flat

*Zone A rents

Out of the 129 prime locations surveyed, 51 posted higher year-over-year average rents while 49 were flat. Except the rent of Avenue des Champs-Élysées staying flat, the other four streets in the global top five list recorded double-digit YoY growth. According to the Highlight’s analysis, retailers entering new markets – both developed and developing – continue to hedge their risk by targeting the same one or two premier locations, generating heated competition and outsized rental growth.

Looking ahead, the current weakening consumer sentiment among affluent shoppers has already begun to impact retailers’ revenues and suggests flattening growth rates for the coming year.

In Asia, following Hong Kong’s fashion retail streets in the global top five, Ginza-Chuo Street in Tokyo, Orchard Road in Singapore and Nanjing Road West in Shanghai ranked 14th, 25th and 31st worldwide. Retail rents of most Asian locations surveyed saw growth or stayed flat compared to the previous year, with those most resilient in Hong Kong, Beijing and Bangalore registering double-digit increase YoY. Survey findings of the key retail markets in Asia are as the following.

Hong KongDespite increasingly challenging external environment, there is no sign of abating for the inflow of international fashion and luxury brands in 2012, which fuelled retail rental growth in Hong Kong.

“Hong Kong remains a landlord’s market where newcomers outbid one another and existing tenants succumb to soaring rental increases in order to secure the best locations in the traditional shopping districts such as Central, Causeway Bay, Tsim Sha Tsui and Mongkok,” said Simon Lo, Executive Director of Research & Advisory, Asia at Colliers International.

Global economic slowdown and sustained cost inflation locally are expected to pose challenges to Hong Kong’s retail market. Hong Kong retail sales growth is expected to slow down to 8-10% for the full year of 2012, compared to 15% in 1Q 2012; as May retail sales data reflect more caution among Mainland consumers who drives major pillar of visitor spending that contributes the local retail market. For the whole year 2012, the average rent of ground-level shops in traditional shopping districts in Hong Kong is predicted to rise 12%.

Mainland ChinaIn Shanghai, average rents for ground-floor space in prime areas reached RMB52.7 per sq m per day, up 2.9% from 4Q 2011. Brands, seeking to expand their business into the second-, third- or fourth-tier cities, continue to perceive Shanghai as an excellent test market. This strong interest from both domestic and international retailers will keep rents and occupancy at relatively high levels.

Beijing’s average ground-floor fixed rent rose by 3.97% quarter-on-quarter (QoQ). Given the increasing disposable income of local residents and the further internationalisation of Beijing among its peers in China, the outlook for Beijing’s retail property market is expected to remain strong. Despite an estimated 312,000 sq m space to be added into Beijing’s retail stock by new developments, high level of space pre-commitments in most shopping centres suggests that the impact of this increasing new supply will be limited.

In Guangzhou, average ground floor rents remained stable at RMB 757.7 per sq m per month. In 2012, 629,000 sq m new supply will be delivered and are expected to elevate the market’s vacancy rates.

JapanRetail rents in prime retail corridors, which dropped steadily in 2010, stablised in 2011 and have begun to improve in 2012. In Tokyo, rents on Chuo Street in Ginza are projected to increase 10% through 2012. Casual fashion tenants are enjoying increasing popularity with consumers and have begun to compete far more aggressively for space in prime retail corridors.

KoreaRents in Seoul’s Central District rose 2.5% YoY to approximately US$250 per sq ft per year. In the past several years, the concept of the ‘one-stop’ shopping destination in Korea has expanded from large urban markets (such as Seoul’s Dongdaemun and Namdaemun) into large-scale, Western-style complexes. For example, D’Cube City, opened in 3Q 2011 with a department store, a hotel, and office space, and more projects are coming. Also, fast fashion global brands are leading the retail expansion in Korea’s market.

SingaporeOrchard Road, the premier retail venue of Singapore, saw its prime ground floor gross rents holding steady around SGD$38.5 per sq ft per month for two years before slipping to SGD$38.30 per sq ft per month in 4Q 2011 due to the latent effects of the influx of space completed in 2009/2010. Over the period between 2Q and end of 2012, approximately 200,000 sq ft of new retail space will be delivered. Looking ahead, retail rents are forecast to stay fairly resilient, with any downward corrections keeping within 3%. Given the immediate shopper catchment and the continued trend of retailers seeking a presence in well-positioned suburban malls in regional centers, rents there are projected to hold up better than those on Orchard Road.

IndiaAccording to the survey findings, retail rents of Bangalore’s popular Brigade Road rose 18% YoY amidst extremely low vacancy rates; while that of Khan Market in Delhi was up slightly 4.8%. Retail development is taking place not just in the major cities but also second- and third-tier cities. Besides Mumbai and Delhi, 43 other cities have populations greater than one million. Meanwhile, the popularity of online retailing has surged with consumer incentives and product discounts; however,there are some limitations as India’s challenged infrastructure hinders efficient transport and delivery of merchandise.